chevron-down Created with Sketch Beta.

    ABA Health eSource

    December 2024

    Avoid FMV Compliance Pitfalls in 3 Common Professional Services Agreements: Radiology Services, Anesthesia Coverage, and OB Laborist Programs

    Joe Aguilar and Natalie Bell

    Dec 16, 2024

    8 min read

    Compliance Facilities Management Fraud & Abuse Health Insurance Healthcare Facility Operations Insurance & Payment

    Summary

    • Professional services agreements are becoming more complex, and requests for sizable compensation increases are reaching a tipping point for hospital financial sustainability.
    • Hospitals must effectively negotiate professional services agreements while ensuring fair market value/commercial reasonableness compliance.
    • Radiology practices are now facing shrinking reimbursement in the face of significant staffing shortages and rising costs, making it difficult to maintain coverage with professional fees alone.
    Avoid FMV Compliance Pitfalls in 3 Common Professional Services Agreements: Radiology Services, Anesthesia Coverage, and OB Laborist Programs
    Yulia-Images via Getty Images

    Jump to:

    Professional services agreements continue to be a means for hospitals and health systems to ensure specialty coverage, contain costs, and improve quality of care. However, these arrangements are becoming more complex, and requests for sizable compensation increases are reaching a tipping point for hospital financial sustainability. Additionally, negotiations frequently take place against the potential threat of coverage loss if a deal isn’t secured. Therefore, it’s increasingly essential for hospitals to understand the specific financial and operational characteristics of various hospital-based service lines in order to effectively negotiate the professional services agreement (PSA) and ensure fair market value (FMV)/commercial reasonableness (CR) compliance. Three specialty areas that have posed particularly challenging problems are radiology, anesthesia, and OB laborists. In this three-part series, the nuances of these hospital-based specialty PSAs will be explored, specifically discussing certain market influences, critical due diligence items, as well as key contract terms that are material to FMV/CR opinions:

    1. Part 1: Increasing costs, coverage requirements, and subspecialty services: Considerations for compliant radiology agreements
    2. Part 2: Anesthesia extended hours and flex time coverage: Ensuring that compensation terms align with FMV
    3. Part 3: OB laborist programs: Managing the staffing, collections, and work relative value units (wRVUs) associated with delivery services in the context of a global OB package

    This article represents Part 1; Parts 2 and 3 will appear in forthcoming issues of ABA Health eSource.

    Increasing Costs and Shrinking Reimbursement in Radiology

    ABC Radiology Service, LLC, currently provides imaging services as the exclusive provider to a hospital client and has now approached them for the third time, requesting a $450,000 subsidy under their PSA for interventional radiology coverage. The radiology group is stating that without an increased stipend, they will no longer be able to provide the necessary on-site interventional coverage due to low volume of interventional cases and rising costs for an interventionalist.

    This situation is becoming increasingly common as radiology practices are restructuring their agreements with health systems. Historically, health systems entered into service agreements with radiology groups, often with little or no cash payments involved. The radiology groups agreed to provide comprehensive coverage in exchange for being the exclusive provider of radiology services. Unlike other hospital-based specialties, radiologists typically earned enough from professional fees to cover their costs, making these agreements mutually beneficial without direct financial compensation from the hospital.

    The landscape is changing. The primary reason behind these changes is the rising financial burden on radiology groups to maintain continuous coverage. Radiology practices are now facing shrinking reimbursement in the face of significant staffing shortages and rising costs, making it difficult to maintain coverage with professional fees alone. From a revenue perspective, the American College of Radiology estimates a projected overall reimbursement decrease of about 2.8% on radiology services coming under the 2025 Medicare Physician Fee Schedule. In addition, radiology groups have also been adversely affected by the No Surprises Act. While most physicians bill very few out-of-network (OON) claims, radiologists bill approximately 6.3% of their claims out of network. A contributing factor to this level of OON billing is the site of service. According to the U.S. Department of Health and Human Services, “Claims from emergency departments (13 percent) and ambulatory surgery centers (8 percent) are more likely to be billed OON than claims from office visits (4 percent).” These sites of service are common to radiology and have had a direct impact on a portion of their revenues.

    While revenues are facing headwinds, operating expenses are rising due to inflation as well as provider shortage in the context of rising demand. Not only are radiology practices experiencing rising costs in administrative services and supplies, but they are challenged with higher provider compensation requests from radiologists. An aging Baby Boomer population, imaging overutilization, and expanded diagnostic imaging capabilities are increasing the demand on an already strained supply of radiologists. Radiologists are working harder, and it is reflected in the wRVUs per FTE, according to the Medical Group Management Association (MGMA) survey data. Table 1 below illustrates a wRVU growth rate at the median of 19.55% over the last few years. Some of this increase in workload is being driven by the pressures exerted from declining reimbursement resulting in radiologists having to read more imaging studies per FTE to generate similar revenues and maintain compensation levels. Given their demand, radiologists are seeking higher and higher compensation levels commensurate with the growth in their workload. This direct impact to compensation can be seen on Table 1, which illustrates the compensation and production data trend between 2019 and 2023. Not only did wRVUs grow, but median compensation for diagnostic radiologists increased by 12.2% over the last four years. All these financial burdens are creating practice losses that are then being transferred to the hospitals through increased subsidy payments.

    Table 1: Provider Compensation Survey and Production Data Trend – Median Level

    Radiology: Diagnostic

    2019

    2020

    2021

    2022

    2023

    wRVUs

    9,605

    8,640

    9,540

    10,216

    10,587

    Collections per wRVU

    $66.28

    $64.17

    $58.18

    $61.97

    Insufficient data

    Compensation per wRVU

    $55.69

    $58.95

    $56.19

    $55.30

    $54.78

    Total Compensation

    $508,472

    $511,454

    $515,460

    $525,722

    $570,709

    Coverage Requirements Drive Value

    Radiology coverage agreements often differ in how they outline the contractor’s coverage responsibilities. Some agreements will list out the provider type, shift, and hours worked per shift to ensure the exact coverage desired. Others may only state that the contractor must provide “sufficient staffing” in order to cover the service over a 24-hour period. Under these vague terms, the contractor could fulfill the obligation by staffing with various types of providers, adjusting the total number of provider FTEs used, and/or utilizing a mix of on-site and off-site coverage. To ensure the contractor delivers coverage aligned with FMV support, it is advisable to include detailed coverage requirements. At a minimum, these should specify the type of provider, hours of restricted coverage, and use of teleradiology. The FMV support should reflect these detailed requirements to justify appropriate compensation.

    For example, Table 2 illustrates two distinct radiology services that are exclusively covered by a radiology group under a PSA to provide 24/7 diagnostic coverage plus interventional radiology coverage on-site during weekdays. Each service generates similar number of reads with approximately 103,850 wRVUs per year. Staffing Model A utilizes fewer interventional radiologists and advanced practice providers (APPs) to cover the service compared to Staffing Model B. Given the difference in compensation combined with the volume of wRVUs generated by each specialty type, Staffing Model B is more costly. While interventional radiologists do perform diagnostic reads, they do so at a lesser volume given their on-site requirement and focus on procedural work. Even at low-volume facilities, interventional radiologists spend a portion of their time performing minimally invasive procedures guided by imaging. The time required for these activities reduce the amount of time they can spend on reading and interpreting diagnostic images. As a result, the compensation value of the staffing models above differs by as much as $415,000 per year. Both are covering the service, however, the provider types, the case mix of imaging services, and their compensation can yield very different resource costs.

    Table 2: Staffing Models based on Provider Type

    Staffing Model A

    Provider

    Comp / FTE

    wRVU / FTE

    FTEs

    Total wRVUs

    Total Value

    Diagnostic

    $602,751

    11,612

    8

    92,896

    $4,822,008

    Interventional

    $618,719

    8,189

    1

    8,189

    $618,719

    APPs

    $153,314

    2,753

    1

    2,753

    $153,314

    Total Coverage

    103,838

    $5,594,041
     

    Staffing Model B

    Provider

    Comp / FTE

    wRVU / FTE

    FTEs

    Total wRVUs

    Total Value

    Diagnostic

    $602,751

    11,612

    6

    69,672

    $3,616,506

    Interventional

    $618,719

    8,189

    3

    24,567

    $1,856,157

    APPs

    $153,314

    2,753

    3.5

    9,635

    $536,599

    Total Coverage

    103,874

    $6,009,262

    When evaluating for appropriate staffing, it is important to keep in mind the case mix of imaging modalities and calculate the wRVUs generated by the service line. The wRVUs will be a function of the physician’s expertise in interpreting the image study, time required to deliver the diagnostic reports, and complexity of the modality. This can vary considerably. For example, a simple x-ray may require minimal time and effort for interpretation, while a more complex MRI or CT scan, particularly involving the brain, spine, or abdomen, demands greater expertise and a more detailed analysis.

    As such, it is important for the PSA to delineate the following:

    • Scope of services: Clearly define the specific services the radiology group will provide (i.e., diagnostic imaging, interventional radiology, subspecialty services).
    • Hours of coverage: Establish expectations for on-site, remote, and after-hours coverage, including night and weekend shifts.
    • Subspecialty expertise: Ensure the PSA outlines subspecialty coverage requirements (e.g., neuroradiology, pediatric radiology) based on the needs of the health system.

    Structuring the Subsidy Solely Around the Subspecialty Coverage

    The request for higher subsidies is often associated with radiology subspecialties requiring on-site direct physical assessment of the patient, especially those that involve interventional procedures or comprehensive consultation. These subspecialties include: a) neuro-interventional radiology, b) interventional radiology, c) breast imaging, d) musculoskeletal imaging, and e) nuclear medicine radiology. Given the requirement to be on-site coupled with the increasing compensation for these subspecialties, many radiology groups are requesting a subsidy payment for the provision of these services in isolation of the economics of the other imaging modalities. Under an exclusive arrangement, isolating a single service and excluding the FMV analysis of all services could potentially lead to the arrangement being outside of FMV and, as result, out of compliance with FMV and potentially CR requirements.

    While radiology groups may attempt to structure their subsidy arrangements around a particular subspecialty, health systems need to evaluate the economics associated with the exclusive arrangement in its entirety. See Table 3 illustrating the fair market value (FMV) subsidy calculations for the example illustrated above for ABC Radiology, LLC. The proposal calls for an interventional radiologist to be on-site at the hospital Monday through Friday, 8 a.m. to 5 p.m., for potential cases.

    Table 3: Evaluation of FMV Compensation for Radiology PSA (ABC Radiology, LLC)

     

    		 Proposal
    Intvl Radiology
    Only    		 Program A
    (Favorable Payor Mix)
    Entire Rad Service    		 Program B
    (Poor Payor Mix)
    Entire Rad Service

     

    Revenue – Intvl

    Revenue – Diag

    $350,000

    -

    $350,000

    $4,200,000

    $250,000

    $3,000,000

     

    Total Revenues

    $350,000

    $4,550,000

    $3,250,000

    A
     

    Expenses – Intvl

    Expenses – Diag

    $800,000

    -

    $800,000

    $3,500,000

    $800,000

    $3,500,000

     

    Total Expenses

    $800,000

    $4,300,000

    $4,300,000

    B
     

    Subsidy

    ($450,000)

    $250,000

    ($1,050,000)

    A - B

    Note that ABC Radiology, LLC is proposing a subsidy of $450,000 per year solely based on the revenue less expenses associated with the interventional radiology service. However, depending on the profitability of the radiology service in its entirety, the $450,000 request may be outside of FMV. Under a favorable payor mix service, the program as a whole illustrates a profit of $250,000. As a result, no subsidy is required under Program A. However, under Program B, the poor payor mix has resulted in lower collections, which, in turn, generates an overall loss of $1,050,000. In Program B, the analysis supports a subsidy of not only the $450,000 for interventional radiology only, but up to $1,050,000 for the entire service. Program A would be outside of FMV compliance if the hospital elected to pay ABC Radiology, LLC the requested $450,000 subsidy.

    In addition to the analysis above, it is important to note the radiology subspecialist will often perform diagnostic reads for the group while on a subsidized restricted shift. This is another important consideration for why it is imperative to situate a subsidy for subspecialty services in the context of all arrangements provided by the radiology group. Given the typical exclusivity that is characteristic of these arrangements, a careful reassessment will help ensure compliance across the service line.

    Summary

    As the complexities of professional services agreements in radiology are examined, it’s critical for hospitals to strategically address the escalating costs, adapt their staffing models, and meet the requirements of subspecialty services, all while ensuring FMV compliance. By gaining a deep understanding of the financial impacts and operational demands specific to radiology, hospitals can negotiate agreements that align with FMV standards, balancing the need for high-quality specialty care with sustainable cost structures. In the next issue, Part 2 of this series will further explore nuances associated with anesthesia services and the considerations surrounding excess coverage hours / flex time compensation terms.

      Authors